Wednesday, August 31, 2011

David Fry came up with that meme to describe how markets can rise on bad news. This happens when the Bulls seize upon the idea that the worse the news is, the more likely it is that the Fed will step in and rescue the markets. This is called the Bernanke put. This type of action happened yesterday when the markets rallied in the face of horrible consumer confidence data. Of course good news is still good because that means the economy is doing better. Yeah, I know it makes zero sense but that is the way the markets work.

Today we got some bad news and some good news. On the bad news front, factory activity in the Midwest slowed to its lowest pace since November 2009. Factory activity was still growing but it was growing at a slower rate.

The good news came in another report which showed that private nonfarm payrolls grew by 91,000 in August. The ADP report showed that turmoil in the financial markets and weakening confidence has not affected hiring all that much. The much anticipated government August jobs report is out this Friday.

More good news came from the July US factory orders report from the Commerce Department which showed a huge jump in the demand for autos and airplanes. In fact, it was the biggest jump in the demand for autos in 8 years!

"The Commerce Department says factory orders climbed 2.4 percent, the largest increase since March. Orders for motor vehicles and parts rose 9.8 percent, the largest one-month gain since January 2003," said the Associated Press. This is likely related to Japan auto and parts production coming back online after the Fukushima earthquake devasted manufacturing there.

In other big news, the Justice Department has filed a complaint in the US District Court of Columbia to block the planned merger of AT&T and T-Mobile which would create the biggest wireless company in America on the grounds that it is anti-competitive.

"AT&T's elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market," said the complaint. "Thus, unless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger."

The deal would have reduced the amount of major wireless carriers in the United States to just 3, Verizon, AT&T and Sprint. Consumer advocates argued that it would reduce competition, raise prices and result in poorer service.

Stocks rose as much as 150 pts on the DJIA before paring gains. As of 1:00 PM PST, the DJIA was up 53 pts, Gold was unchanged and oil was down a small amount. European shares rebounded strongly after underperforming recently with the German DAX up close to 3.0% and the London FTSE up 2.5%.

Stocks I am watching today include AAPL which is selling off hard today, much more than the overall market. I'm not sure why except maybe simple profit taking after a nice runup. There seems to be a resistance level around 391-392 that it can't seem to get past. The stock opened on the highs around 392 and steady selling has dropped it to 384.

I am also monitoring the small caps stocks via IWM which are also underperforming today. Small caps have run up much more than the overall market the past week or so, so a little profit taking is to be expected. I will become more concerned if the weakness persists. As you know, I have been watching small caps to signal turns in the markets so let's see how they close today. If they can close green, I will consider it to be positive.

Strength is found in manufacturing stocks that had been absolutely obliterated in the correction. CAT for example had been as low as 79 but has rallied furiously over the last week to 94. Thats almost a 20% move in a week and a half! That's some nice coin there. It is concerning to me however the big turnaround today in CAT. After hitting a month high at 94 it has dropped 3.50. This could be a big turnaround day.

I got stopped out of XLE today at the lows of the day. I had been keeping a shallow stop and raising it as I went along. Unfortunately, I set my stop a little to high and it triggered when XLE went down to 68.00. It quickly bounced back and ended the day around 68.50 costing me some profit. Still, I made another 4% on that trade so I can't be unhappy. Its uncanny how those market makers can fish for those stops.

Tuesday, August 30, 2011

This chart from ZeroHedge shows consumer confidence has been falling throughout 2011 and has never recovered post Great Recession.

Consumer confidence dropped to the lowest level since the depths of great recession a private research report showed Monday.

"The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July," said a Bloomberg article. This drop was the biggest one month drop in the history of the Conference Board survey.

Consumer sentiment was weighed down by constant bickering in Washington over raising the debt ceiling, high oil prices, falling stock prices and the downgrade of US debt which caused turmoil in the financial markets.

Consumer spending makes up 70% of the US economy so any changes in consumers' attitude is monitored closely by economists and traders. With consumer mood souring it may make it less likely they open their wallets to purchase that new flat screen TV or automobile.

Stocks immediately dropped sharply in reaction and Gold rose. Stocks later recovered after an initial 100 point drop on the Dow Jones Industrial Average.

Stocks ended higher on the day after minutes from the Fed's recent meeting came out showing that the Fed was looking at creative ways to boost the economy. Stocks and Gold both shot higher on the news. At the close the Dow finished up 20 pts after earlier being up almost 100. A sharp selloff in the last 15 minutes of trading pared gains. Gold closed at $1834 an ounce up almost 50 dollars on the day.

It was another day of strong bullish action in the markets. The initial swoon of the markets on the consumer confidence news didn't faze the bulls as they drove the markets higher. A few weeks back, markets would have been down 400 pts on the negative consumer confidence news. The fact that bulls could brush off that kind of news and rally is extremely positive.

Later in the day, the Fed minutes gave more ammo to the bulls as they are looking for any kind of stimulis that could drive asset prices higher. A little concerning was the last 15 minutes of trading. It was a swift drop of 60 pts on the DOW which could lead to some follow through selling tomorrow.

I chickened out and sold my AAPL on the consumer confidence news. The market dropped so sharply it freaked me out and I got out of it around $388. Still, I made a 4% profit on the trade so I'm happy. AAPL later traded up past 391. I am still holding on to my XLE.

I also started a position in Gold from the proceeds. I decided to go ahead and buy some as a hedge. I only bought a small position and will add to it as it goes up. If it goes down I set a 4% stop on it. I may decide to keep it to see if it comes back because it is such a small amount.

I like Gold because it is showing a lot of strength even in the face of rising stocks. I think the price of Gold is an indictment of the fiscal policies of the developed world. I don't see any change in the loose monetary policy so Gold should still be a good place to be albeit with some sharp corrections along the way.

Monday, August 29, 2011

Local weather forecaster Kaj Goldberg is a little excited about Hurricane Irene...

The major indexes continued their recent rally into the new week as two major Greek banks merged and consumer spending reached its highest level in 5 months. At 1:00 pm Pacific Time, the DJIA was up over 250, the S&P 500 was up 33 to 1210 and the technology heavy NASDAQ was up 82 points!

Small caps stocks were outperforming with the Russell 2000 up over 4.5% to 724. Gold prices were lower by $30 and the 10 year bond yield rose to 2.27% as people sold gold and bonds and put money to work in stocks. Oil was up 2% to 87.50.

Financial stocks rallied as Greece's EFG Eurobank and Alpha bank merged to shore up their finances. This alleviated fears of a complete meltdown of the Greek banking system. Banks and insurance companies were the top performing sectors in today's trading. Insurance companies rose after damage from Hurricane Irene was less than expected.

Stocks were also supported by word out of Europe of a radical new plan to recapitalize banks. The program would be similar to the TARP program implemented in the US during the 2008 credit crunch.

"The government's of the healthier European banks could inject new capital into the banks, while the most extremely pressured banks could also receive backstops for their debt, (just as happened in the U.S.)," according to John Carney of NetNet blog.

If true, this could be a game changer in the European debt crisis.

European shares rallied smartly on the news with the German DAX up 2.5%, the French CAC up 2.4% and the Spanish IBEX up 2.6%. The British FTSE was closed today for summer bank holiday.

Market action today was very positive. Stocks steadily rose throughout the day and finished on their highs. This type of action usually bodes well for tomorrow. Interestingly, small caps are outperforming once again and over the past few days the small cap index has risen over 10%! I was looking at small caps to lead a sustained rally higher and it looks like we are getting it. We could rally for the rest of the week until we get unemployment data for August on Friday. This data will confirm or deny the rally.

Technicians I follow say that this 1210 level is important because it is where the rally failed a couple weeks back. We are sitting on that level right now on the S&P. If we can break through this level convincingly on good volume, the rally should continue. I'm of the opinion that it will so I'm looking for the SNP to trade up to 1240-1250 in the next week or so. If the double bottom pattern I outlined last week is confirmed we could even rally up to 1300, but I consider that unlikely in this environment. Let's see what happens....

Saturday, August 27, 2011

September 17th could be an interesting day on Wall Street. Members of hacktivist collective Anonymous along with Culture Jammers and Adbusters under the umbrella group S17 plan an occupation of Wall Street to last months or more. The group asks supporters to do only one thing and that is to "bring tent".

"Simultaneous occupations of financial districts are now being planned in New York City, Madrid, Milan, London, Paris and San Francisco. With a bit of luck, this list of participating cities will grow," said Anonymous in an internet posting.

"If we can pull together just the right mix of nonviolence, tenacity and strategic smarts, S17 could be the beginning of the global revolution we've all been dreaming about for so long ... wouldn't that be lovely."

The group plans to occupy Wall Street for a lengthy period of time in a non violent demonstration against the corporatist policies of the government to the detriment of the people.

"The abuse of corporations, banks and governments ends here," it proclaims.

It remains to be seen what effect this demonstration will have on stock prices although it could hardly be bullish for stocks. I will be keeping an eye on this as further developments arise.

Friday, August 26, 2011

It was a nice day of gains for the market today after a huge turnaround sent the DJIA up 300 pts in a matter of hours. The market was down as much as 2% in the early going as worse than expected GDP data and europe fears weighed on market sentiment. No stimulis from Bernanke also compounded negativity. Markets quickly turned around however and rallied nicely throughout the day finishing up over 1% on the day led by the technology heavy NASDAQ which gained over 2%!

Quite a nice showing by the bulls today who latched on to Bernanke's words about continuing economic growth and no recession and ran with it. I think we will get some follow through action next week unless we get some bad news out of Europe like Greece having to tap its emergency fund.

My stocks were up nicely today and I put on another trade on the turnaround today buying some XLE. I like the secular story with energy and prices are cheap enough for me to take a stab at a rally.

AAPL also did very well today as traders bid up the technology giant. Steve Jobs health was an overhang that was causing the price to stay low relative to its growth rate and now that we have clarity on the situation, AAPL shares are free to rise. AAPL is one of the strongest stocks in the market right now and should definitely be bought on weakness.

NLY had been plunging the past couple of days almost 6% on no news but rallied back nicely today finishing up 2%. I suspect people may be selling because of the flattening of the yield curve which could possibly lessen NLY's spread and therefore its dividend. I still think MREITs are one of the best ideas for the next few years in this low growth, low interest rate environment.

Ben Bernanke delivered what the street expected Friday and that was a whole lot of nothing. I think expectations were low about what Bernanke could do to stimulate the economy. He reiterated that the Fed was to keep interest rates at extremely low levels for the next two years but that a new round of bond buying was not on the table at this time. He also said the Fed has numerous tools to aid the economy if needed.

“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said in a speech to economists and policy makers gathered in Jackson Hole, Wyoming.

Bernanke also sought to prod policymakers in Washington to come up with a job growth strategy.

Bernanke said the “extraordinarily high level of long- term unemployment” adds urgency to the need to boost jobs but that the Fed can’t do it alone: “Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.”

Bernanke reiterated that economic fundamentals of the US are still sound.

“Although important problems certainly exist, the growth fundamentals of the US do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”

The markets seemed to like what he had to say at it has risen from its lows of the day after a head fake when Bernanke said he was not going to provide more QE at this time. Markets were down over 100 pts early on but are now in positive territory with the Dow up and the NASDAQ up even more.

Thursday, August 25, 2011

Legendary investor Warren Buffett purchased 5 billion worth of preferred shares in Bank of America in a vote of confidence for the management and in America. Bank of America's stock price had fallen nearly 40 pct this month as investors questioned whether they had enough capital on hand to meet mortgage putback liabilities and whether their assets were worth what they said they were. Buffett got superior terms to other investors as he has the rights to buy 50000 shares of $100,000 preferred stock with a 6% dividend. Translated to common Buffett's cost basis is around 7.15 and with BAC trading at 7.61 that gives Buffett a paper profit of over 200 million already! BAC stock shot up on this news nearly 25% in early trading although it pared gains later on to nearly 10%. It's another sweetheart deal for Buffett who made similar deals with Goldman Sachs and General Electric at the height of the financial crisis in 2008. Buffett profited handsomely on those deals adding to the already legendary stature of the long time investor. Reportedly, Buffett came up with the idea of buying BAC whilst bathing in his tub on Teusday. He thought it was such a good idea he called BAC CEO Brian Moynihan the next day to discuss terms.

You know its a skittish market when rumor mongering can send the DOW down 200 pts in a short period of time. Rumors of a credit rating downgrade of German debt and a ban on short sales flash crashed the German stock market earlier today. The DAX dropped 5% before quickly recovering after the credit ratings agencies reiterated their AAA rating of German sovereign debt. It is things like this that frustrates investors and causes them to think the market is rigged. The Dow sold off and never really recovered finishing down 170 pts at the close. I would have thought the markets would recover after the rumor proved false but I guess it was excuse enough for traders to pare positions ahead of Bernanke speech tomorrow.

While Bernanke's speech tomorrow is important perhaps even more important is Trichet is speaking as well. Many of the markets fears are centered around Europe so Trichet can go a long way towards restoring confidence if he can show the markets that he is on the ball and will take care of the situation. While there is no easy solution to the debt crisis, if he can demonstrate he is not asleep at the wheel and is coordinating with governments on a policy response, that should help. Markets, I believe, have low expectations of Europe's policy makers so Trichet could surprise everyone.

Apple surprised me by holding up so well after the announcement yesterday of Steve Jobs departure. AAPL finished at 373.70 down only a couple of bucks as investors took the opportunity to buy the dip. This was very bullish action for me as AAPL finished near the highs of the day even with the market selling off hard. I will keep my AAPL for now. I remain constructive on the market as bank stocks seem to be stabilizing. Buffett's investment in BAC signifies he thinks it's cheap and I agree with him. I won't be buying any at this time but will keep my eye on it. Happy investing.

Wednesday, August 24, 2011

It is the end of an era at Apple. The man behind the iPod, iPhone and the iPad announced his resignation today after more than 30 years in the computer business. Under Steve Jobs leadership, Apple grew into one of the largest companies in the world by market capitalization and its designs and innovation became the envy of the computer industry. Jobs had been telegraphing this move for years as health problems had taken its toll on his abilities to run a company. Jobs will remain on the board of directors but Tim Cook will replace him as CEO. Apple's stock price quickly dropped almost 6% in the wake of the announcement trading around 358 dollars after earlier closing at 376.18. Jobs will be missed.
The other big news of the day was the action in gold. Gold dropped over 100 dollars today as hedge funds took profits after a huge runup. Traders may also be anticipating some negative news regarding gold prices from Ben Bernanke this Friday. Gold had gotten so far above its 50 day moving average that something like this was bound to happen. Dennis Gartman says this is the popping of the gold bubble and to get out now and do not look to buy this dip. I happen to agree and foresee another 150 dollars of downside from here as the momentum is very strong to the downside. After the bell, the CME hiked margin requirements 26 pct which should add to the downward pressure tomorrow. I'm glad I didn't buy the dip in gold recently but will see where it stabilizes as I do want to get some exposure to gold.
Market action today was once again very positive as the DOW gained 143 pts, the SNP 500 up 15 and the NASDAQ up 23. This was a continuation of the rally that saw the DJIA gain 500 pts in the past 3 sessions. The market is now in a confirmed uptrend, however this Steve Jobs news may derail the positive momentum. A quick check of after hours action reveals futures down 46 points on the Dow and 24 pts down on the technology heavy NASDAQ.
It was quite unfortunate for me today the timing of this news as I purchased some AAPL today and am now quickly in the hole 5 pct. AAPL stock will probably flounder for awhile after this because Steve Jobs was AAPL and he is irreplaceable. I may have to sell out tomorrow, but I will see what the market reaction is. People may look at this as a dip buying opportunity as AAPL is still making money hand over fist and is one of the cheapest growth stocks out there. I look for a continuation of the recent rally until Friday when Ben Bernanke is slated to give a speech from Jackson Hole Wyoming regarding the state of the economy and whether the Fed will provide more stimulis. I have low expectations for what the Fed may do but it seems the market is anticipating some kind of help from the Fed. We could rally until Friday and then sell off on the news is my expectation. Good luck out there.

The biggest gold drop since 2008 has sent prices plunging over 70 dollars. Gold is now 140 dollars from its highs of a few days ago. It is a testament to Gold's parabolic rise that prices are still at week ago levels. I'm not sure what news has caused this but it could be people are finally realizing the impact of Shanghai hiking margin requirements 26%. Other speculation includes hedge funds selling their winners to cover some bad losses this month. Either way, this looks to be the buying opportunity that many have been waiting for, although the swiftness of the drop argues for caution at this point. The chart looks like silver a few months back when it went parabolic and silver is still consolidating at much lower levels at this time.

Tuesday, August 23, 2011

Market action today was very positive. The bulls showed a little more fight today with steady buying pressure throughout the day. Markets ended 3% up and Gold was 3% down. I was very encouraged by today's action and may put on some longs tomorrow. I am looking at AAPL specifically and perhaps XLE. The fact that oil held up even with the Libya news is bullish to me.

Looking at the charts, markets may have put in a double bottom and if my rudimentary TA is correct we could be looking at a target of 1280-1300 on the SNP. I did not do anything today with my portfolio as it seems I do not have a handle on the short term direction of the market at this time. Yesterday I was talking about shorting small caps and buying gold and both of those trades got obliterated today. Gold had a huge reversal and a nice dip buying opportunity could be coming up here. I still like AAPL also and in a better market it would be north of 400 bucks by now. AAPL is one of the cheapest high growth stocks out there and should be trading much higher in my opinion. I think people are afraid to buy it up here because it's market cap is so high, but I think it will become the first 500 billion dollar company. I have gotten burned by headfakes in the market the past few weeks but today's action seemed very real to me and we could get a nice rally from here. Let's see what happens...

Disclosure: Long NLY

double bottom- A charting pattern used in technical analysis. It describes the drop of a stock (or index), a rebound, another drop to the same (or similar) level as the original drop, and finally another rebound.

1. Stocks are cheap! Stocks forward earnings yield relative to treasuries are at levels not seen since 2009. Would you rather loan the government money at 3.7 pct over 30 years or buy a defensive dividend paying stock like JNJ where you get a chance for some capital appreciation along with the dividend. Also, stocks current PE ratio is the cheapest since the market bottomed in March of 2009!

2. Insiders are buying like crazy. Company insiders are buying stocks at the fastest rate since March of 2009. Insiders have the best knowledge of their companies prospects so there is only one reason they would be buying and that is because they think they will make money. Understand this is not a short term call on the market as insiders are forced to hold stocks for 6 months after they purchased them.

3. Dumb money indicators are bullish.

As you can see from the chart, when the "dumb money" turns bearish it can signal a turn in the market. Dumb money is usually bullish at the top and bearish on the bottom so they can be useful as contrarian indicators. Mutual fund investors are traditionally considered to be "dumb money" and they are pulling their money out of the market at the fastest rate since 2008. I consider myself to be "dumb money" as well and witness that I turned bearish a few days back and we are up 200 today!

4. Copper and oil are not crashing. Of course this could be related to the weakness in the US Dollar but if the global economy was truly falling off a cliff, copper and oil would be crashing. Brent crude is still above $100 and copper has held its 2011 and early August lows. As they say Dr. Copper has a PHD in economics. You can infer a lot about the prospects for global growth going forward by looking at the price of copper.

5. Italian and Spanish bond rates continue to decline. Since the ECB pledged to buy Italian and Spanish bonds the market has stabilized. One of the major fears of this market is whether Spain and Italy were going to go the way of Greece. With the ECB stepping in one major market fear is alleviated.

I would say that the most important indicator is copper and oil prices. The world economy continues to grow as evidenced by oil and copper not falling off a cliff. As long as this continues stocks are not going to collapse. While there are still downside risks to this market, at these levels markets have priced in a lot of bad news. If you are a young accumulator investor, now might be the time to start buying in.

Monday, August 22, 2011

A market rally based on hopes of more fed stimulis was doomed to fail and that is exactly what happened today. We floated higher throughout the night opening up nicely today and climbing over 200 pts on the DOW. As per bear market rules, traders sold the pop until we were unchanged on the day. Buyers then stepped in and up we went about 100 pts where we bounced around the rest of the day finally finishing at +37. While I suppose it was a bit of a victory for the bulls that we finished positive, it has to be very discouraging to see that we cannot hold any decent gain. Pinning our hopes on Ben Bernanke at this time seems foolish as well. I wouldn't expect anything major to emerge from Jackson Hole on Friday and if we rally based on hopes of more stimulis or an announcement of stimulis then that rally should probably be sold.

I did nothing with my portfolio today but am looking to scale into some GLD or SLV on a dip which doesn't look like it is coming any time soon. A safer way to catch this wave on gold might be to use the pyramid up momentum strategy buying a little at a time and only if the price is higher than your previous purchase price. That is probably the strategy I will use. Also, I am going to put on a russell 2000 short via RWM. If you are looking for a turn in the market a good place to start would be to watch the small caps. If they start to outperform again, there is your signal. Best wishes

1. Policy maker ineptitude in Europe. Germany is the only country that can save the EU. They have the money whereas all the other countries have huge deficits. However, German Chancellor Angela Merkel is between a rock and a hard place. She likes the idea of the Euro whose weakness allowed Germany to become an export powerhouse but being part of the euro means bailing out other debtor nations which the German public has no appettite for. So the Europeans are stuck in a cycle of doing just enough to keep the Union going but not enough to actually solve the problems. Markets want a Eurobond but Merkel wants no part of this because she knows Germany is going to be on the hook for any default. All this introduces much uncertainty into the market and therefore Europe sells off hard.

2. Policy makers in the US are hamstrung. Markets believe Ben Bernanke is out of bullets and the US government is embarking on austerity. With economic data and confidence weakening, austerity at this time will likely result in a slowdown in the economy and perhaps another recession. Markets are pricing in no more government stimulis and a handcuffed central bank.

3. Forced liquidation by hedge funds and european banks. Many hedge funds had been long on margin and when the market started crashing were forced to sell as they were getting margin calls. European banks are selling anything and everything to get more liquid to weather the storm.

4. High Frequency Trading magnifies all market moves. What has surprised me about this selloff is the swiftness, its like there is no bid in this market at all. HFT's push the market down faster when its going down and push it up higher when its going up. Many people don't want to part of these gyrations so they bail.

What we need is some policy coordination in Europe between the ECB and governments and in the US, a sign that the government is going to do something to encourage economic growth. Until that happens, the markets will likely keep going down until it finds equilibrium. Markets have zero confidence policymakers can or even have the ability to do whats right for the global economy. Tomorrow, I will write reasons to be bullish. Yes, there are some.

Chop all veggies and mix them. Mix the mayonnaise, milk, sugar, salt, pepper and lemon in a bowl. Whip it up nice and good then pour onto the veggies and mix them up until all veggies are coated. Chill for a few hours in the fridge. Then enjoy. Taste fracking good!!

Friday, August 19, 2011

With the markets down 15% from the peak earlier this year and macroeconomic data pointing to a recession, it seems useful to go over bear market rules.

1. Oversold conditions are dangerous in that they often resolve to more selling. In other words don't try to pick bottoms based on oversold conditions. Do NOT buy the dip in a bear market. You sell the pops in a bear market.

2. New long positions should be short term trades only. Do not get married to your AAPL because it's made you so much money in the past. If you want to go long set a predefined stop and stick to it!

3. Overbought conditions may present a selling opportunity. The market has just crashed and bounced up about 10% to 1200 on the SNP. Perfect opportunity to sell right there. Markets never even made it back to overbought because it was so deeply oversold but everyone sold the bounce.

4. Increase cash/fixed income positioning. Cash is not trash in a bear market. Fixed income generally is non correlated with stocks and so provides a good place to hide out in bear markets. Corporate balance sheets are so pristine right now so they should have no problems paying you back.

Thursday, August 18, 2011

Horrific economic data along with more bad news from Europe sent the markets reeling today down some 420 pts at the close. The Philly Fed business activity index came in much worse than expected registering a -30.7 on expectations of +3. This was the worst reading since the height of the recession in March 2009. Weekly jobless claims also came in worse than expected rising 9000 to 408000 and sales of existing homes fell 3.5%. Morgan Stanley also warned that the world economy was "dangerously close to a recession" and revised their global growth forecast downward. Adding fuel to the fire was a report that the NY Fed is going to investigate European banks US subsidiaries. More bad news included hotter than expected inflation. It seems we could be starting the next leg down in stock prices.

I believe the market at these levels is pricing in a mild recession. Small cap stocks are already in bear market territory down some 25%. It is too late to sell small caps. Quality large cap stocks have been cheap all along and are probably the place to be at this time. Stocks such as MCD, KO, PEP, JNJ, WMT, IBM, AAPL, MSFT and PG are cheap enough to provide some downside protection. Fixed income CEFs, dividend paying stocks, MREITS and MLPs also are a good place to hide out. Fixed income should be a great place to be for years especially with rates staying low through at least 2013 and probably much longer. I remember a few months back everyone was asking "is there a bond bubble?" LOL... boy was that funny, get everyone to sell their bonds and buy stocks just in time for the bottom to drop out of the stock market and bonds to skyrocket.

I had raised my stop on AAPL yesterday as I saw futures weaken last night. Unfortunately, the price gapped right through my stop this morning so I ended up selling on the open for a small profit even though my stop was 5 dollars higher. So I am left with NLY only in my trading account and 75% cash.

Wednesday, August 17, 2011

I came upon this chart on my travels through the interwebs this afternoon. It shows the Japanese market(red line) and US Market(green line) gyrations over an approximate 30 year period...Japan from 1980 until now and the US from 1990 until now. The first spike up in prices for the Japanese market was caused by their real estate bubble in the early 90s and the spike up in prices for the US was caused by the dot com boom. The US markets have followed a similar trajectory as Japan for the past 20 years which has led many pundits to argue we are in a Japan 2.0 scenario of little to no growth and deflationary pressure. This will lead to large gyrations in market valuations and a market that goes nowhere. For long term buy and hold investors, this type of scenario would be disastrous. If the pattern holds true we are in for another collapse in stock prices over the next few years as deflation takes hold potentially catalyzed by government austerity.

I don't believe we are in for a Japan 2.0 scenario however. There are many differences between the US and Japan which will help us to avoid a similar fate. First off, we have the ability to look at their policy errors and learn from them. Secondly, our demographics are much better. They have an aging, shrinking population while the US has a younger, growing population. Third, the magnitude of the problems are not similar. Japanese real estate prices crashed 90% after their bubble, while US real estate has only dropped 25% or so. Japan's banks are still hobbled by those bad loans while most of the biggest losses for US banks are behind them. Fourthly, US corporations are much more shareholder friendly than Japanese corporations which like to hoard cash rather than pay it out to shareholders. We can count on US corporations to try to maximize profits and try to increase dividends to pay to shareholders which helps to keep a bid in the market for stocks. In short, I don't see how the US markets will become zombified like the Japanese markets for the past 20 years. Japan's stock market is still down 75% from its peak in 1990. If that were to happen in the US, the SNP 500 would be at 400 at some point over the next 10 years and I don't think there's any way thats going to happen.

It was quite a battle going on in the markets today between the bulls and the bears. For the past two days actually. We opened higher this morning and quickly rose 130 points on the DOW on good corporate earnings from retailers. Sellers soon came in and the markets tanked 200 points in a couple of hours to the lows of the day down 80 pts. At that point buyers stepped in and we made it back up to even by the end of the day. I found it positive that we didn't end on the lows of the day. That would have signaled a reversal to me and would have changed my opinion about the short term direction of the market. As it is however, I am still constructive and believe we rally to 1250-1270 area on the SNP. To me, stocks are cheap right now and I want to buy more but at the same time, there is a lot of fear and uncertainty in the markets. I could just as easily see the SNP give back 100 pts as I could a rally up to 1250. So at this point, I will just observe. I am looking to get into some more AAPL but I am looking for it to rally a bit more. My NLY is looking good as well but I would not use the same strategy as AAPL. NLY is a stock to be bought on dips rather than chased higher on a momentum based strategy. Gold is looking strong here but I am not going to chase it way up here at 1800. I guess the buying opportunity was when CME raised margins and it dropped about 60 bucks in a short period of time. That window of opportunity was so brief that it was not even worth trying to catch. And so I patiently wait...best wishes.

Monday, August 15, 2011

Markets rallied on Monday after Japan reported better than expected 2nd quarter GDP numbers and Google announced it was going to buy Motorola Mobility for 12.5 billion. Google is trying to get back into the smartphone hardware business after the flop of its once promising Google Nexus 1 phone. I think its a good move for Google. They know the future is mobile computing and they have to find a way to make some money with it as they make no money from giving away Android. Apple makes over 50% of the profits of the entire mobile phone industry with its business model of controlling the hardware and software and having a superior product. Google, by purchasing Motorola Mobility, is basically admitting that it cannot compete with Apple in the smartphone arena without having some hardware it can make money on. What remains to be seen will be how Google's former partners Samsung, HTC and LG like having a brand new competitor whose operating system they depend on! The other companies may have to start working on their own operating systems as they may not be able to rely on Google for too much longer.

I found today's market action to be quite constructive. We had another 100+ up day, the third in a row. Futures popped last night on Japan's better than expected 2nd quarter GDP report and stayed elevated into the morning hours when the Google news came out. It seems momentum is building in this rally and there should be a continuation of this positive trajectory. Oftentimes, when we get three big up days in a row it, the rally usually lasts awhile perhaps for the next two weeks or so! Of course a lot depends on what happens between French president Sarkozy and German chancellor Merkel tomorrow in their meeting on the European debt crisis. Markets need assurance that the two leaders will do whatever it takes to solve the problem. Any dithering on their parts will likely result in another global equity rout. I anticipate a positive outcome to these meetings however, and a continuation of the recent rally. I will be looking to purchase more AAPL and perhaps some XLE in the next few days. We could trade up to around 1250-1270 on the SNP going forward. Best of luck and happy investing!

Disclosure: Long NLY and AAPL

Warning: All recommendations made in this article are my opinion only. Please do your own due diligence before purchasing any stocks!

Saturday, August 13, 2011

Matt Kemp has done it again. Last night in the 10th inning of a scoreless game he walked the Dodgers off with a basehit to right field scoring Casey Blake. That was at least the third walkoff hit by Matt Kemp this year. Where would the Dodgers be without Matt Kemp? They probably would have 20 wins less. He is having an MVP caliber season and is on pace for 35 home runs 100 RBI's and 40 steals. He could be the first player since Alfonso Soriano in 2006 to post a legitimate 40-40 season. He could be the first player to win a triple crown since Carl Yastrzemski in 1967. He plays gold glove caliber defense in one of the toughest positions to play in all of baseball, center field. He is now a bonafide superstar that opposing managers fear to pitch to when the game is on the line.

Matt Kemp has improved his game in all facets from a disastrous 2010 where his manager and GM were calling him out. I have watched a lot of Dodger games this year and it is amazing the change in his approach from last year. His plate discipline is much better and the pitches that would have gotten him out previously he is now fighting off or even driving. I am not a Dodger fan, I am a Cubs fan but after watching his incredible play this year, I am now a huge Matt Kemp fan. Oh yeah, it doesn't hurt that I have him on both of my fantasy baseball teams this year because I knew he was going to rip shit up! There is nobody in baseball more valuable to his team right now than Matt Kemp. He should win MVP this year and is quite possibly the best player in baseball.

Here are some highlights from Matt Kemp's 2011 season.

8/27/2011 Update: Yet another walk off home run for Matt Kemp...Kemp is now up to 31 home runs 100 RBI's and is batting 323. 40-40 and a triple crown is still within reach. Here is his latest walk off home run.

Friday, August 12, 2011

US consumer sentiment dropped to the lowest level since May of 1980 in early August as high gas prices, lingering high unemployment, a cratering stock market and a dysfunctional government took its toll on confidence. The index fell to 54.9 from 63.7 in July on expectations of 61. This contrasts with another government report which said that consumers spent more in July pushing up retail spending .5% or a 6% annualized rate. This was the best showing by consumers in four months. So, how to reconcile these two reports? On one hand consumers say they are worried about the economy's prospects but they haven't shut their wallets off completely yet. I think its important to focus on what consumers are doing rather than what they are saying. We can discount the sentiment data as long as we continue to get good retail sales numbers. A lot of times consumers mood may be dour but they will keep spending. Consumption makes up about 70% of the US GDP so any change in attitude and behavior by consumers is watched very closely by economists and wall street. The danger is we enter a negative feedback loop whereby consumers believe the economy is getting worse and cut their spending which then really does make the economy worse.

Today's market action was very positive in my opinion. We got a lift on the better than expected consumer spending data for July but fell sharply once the consumer sentiment survey came out. Bulls reasserted themselves however and pushed the indexes up 1-1.5% where we bounced around in a range the rest of the day finally finishing up 1% on the DJIA. I kept expecting to see a selloff at the end of the day because I didn't think anyone wanted to be long over the weekend but it never materialized. It looks like we could get a continuation of this mini rally on Monday.

I didn't do anything with my portfolio today. I expect we trade in a range for the next few months barring some escalation of the European debt crisis or worsening of economic data. All the data was fairly good this week with new unemployment claims and retail sales coming in better than expected. If we can continue this positive trend in the fundamental data, the market should be able to keep rallying. I remain constructive on the market but expect high volatility to continue so I will be kicking back and watching the action rather than participating too much. Best of luck in your investing!

Thursday, August 11, 2011

One of my favorites from Rage Against the Machine. Today was a day for the bulls. We opened higher today on better than expected new unemployment claims which came in below 400,000. This was the spark that was needed to get the bulls stampeding. I've said it before, it will take some good fundamental economic data to turn around this market and we got some today. Steady buying throughout the day drove markets up over 400 pts although we finished off the highs of the day. This was the fourth straight day of 400+ market movements which I heard had never been done before in the history of the stock market!! It's been just an amazing week to behold. I followed the market closely in 2008 as well and this market is remarkably similar although back then we were moving 1000 pts a day and not 400.

I didn't do anything today in my own portfolio although I was tempted to buy some as I believe we can rally some more after today positive action. Interestingly enough was AAPL's relative underperformance to the benchmark. Markets were up 4-5% today but AAPL was up only 3%. I believe this is due to the fact that it had been outperforming the overall market to this point and had been somewhat of a defensive play for people looking to deploy cash. It had been down some 10+ % over the past few weeks but the overall market was down 15-20%. This underperformance is something to monitor over the next few weeks as I would expect AAPL to outperform in any rally. If you are looking for some bang for your buck and expect the markets to keep rallying, look at the most beaten down sectors and stocks such as small caps, EMs and energy plays. I like XLE, CAT, EEM, MOO or IWM and of course AAPL for those looking to play a rally. Me, I am going to follow my plan with AAPL to buy more when it goes up 5-7% but am not looking to add to any other positions at this time. I will wait until things calm down a bit and not when the market is moving 4-5% a day.

I see that I am getting more readers for my blog! Feel free to leave me a comment below on my posts. I am not the most knowledgeable investor, however I do enjoy talking about the markets with people. Also, don't be afraid to click some of these ads if you like my blog! Thanks and happy trading!

Wednesday, August 10, 2011

I've been getting my face ripped off trying to catch falling knives. In my post last Thursday, I said I would not try to catch the falling knife and pick a bottom. Well, twice since then I have tried and failed to pick the bottom. I guess thats why this blog is titled dumb money! I've been doing some dumb things recently regarding my portfolio! For now, I'm going to leave things alone until the situation calms down. I had sold about 10 pct of my long term portfolio two weeks ago but have fully reinvested the proceeds recently at lower prices. I have more cash to deploy if needed, however I am going to wait to see how things shake out going forward. This type of crazy volatility cannot last forever and things don't go straight down forever. If it did we would be at zero in less than a month. I still have 60 pct cash in my trading account. I do not have confidence that I can trade the crazy intraday volatility so I am just going to stay out. I do not have much success with shorting either so I won't be doing that. I have considered going long gold but feel I missed my opportunity. Two weeks ago, I implored everyone on facebook to buy FUCKING GOLD when it was at 1600! Unfortunately, I did not do that myself because I was waiting for a lower price. 200 bucks later, I refuse to chase it up although it does look like it's going to 2000. I'll just keep my AAPL and NLY and hunker down. I won't be doing anything in my long term portfolio for awhile either.
Today's action was pretty disappointing... we opened up 150 pts down and quickly dropped to 400 down. Then we stabilized somewhat and even started moving higher until the last couple hours of trading where we puked up about 300 pts on the DOW. I really thought that we might recover today after the initial downward pressure as we gained over 200 points from the lows but it was not meant to be. AAPL and XLE went green and then boom went the dynamite and the bottom dropped out of the market. We finished some 520 pts down in another very discouraging day in the markets.

Tuesday, August 9, 2011

Markets were deeply oversold after 2 weeks of relentless selling so a reaction to the upside was to be expected. This was the move that me and many others had been calling for for the past week or so. Unfortunately, I had been too early in trying to pick the bottom but this definitely has signs that this might be THE bottom everyone had been waiting for. Futures were down 300 Dow pts last night, and the SNP got to 1080! We rallied into the open of the European markets and by the time US Markets opened we quickly rose 300 pts in anticipation of what Ben Bernanke had to say. After the fed announced they were going to keep interest rates at its current low level until mid 2013, stocks fell to its lows of the day down some 200 pts. Stocks quickly turned around however on no news that I was aware of and rallied furiously into the close rising some 650 pts in the last hour of trading, closing on the highs of the day up 430 pts.
Unfortunately for me of course, I sold one of my mutual funds yesterday and so missed this furious rally. While that fund made up less than 5 pct of my portfolio, I am still kicking myself today for selling into the panic. While panic wasn't the sole reason why I sold the fund(the new transaction fees were) had I waited one day, I could have at least locked in a profit on the position instead of a loss.
This was the type of powerful rally that usually has some follow through so I went ahead and added some to my long term mutual funds and initiated a position in AAPL today in my trading acount. My plan for AAPL is to use a pyramid up strategy. I bought one bucket today and if it goes up 5-7%, I will buy more. I will not buy more if the price drops from here. I will only buy if it goes up. I set my stop loss just below today's low around 350. I am looking for the SNP to rise to perhaps 1250-1270 based on today's huge reversal. However, at that point there should be some more selling pressure at the 200 day moving average. I anticipate we will be range bound for awhile until we can get some better economic data that does not confirm a recession.

Monday, August 8, 2011

There is total liquidation going on right now very similar to 2008. People are selling everything to raise cash and I am finally joining in the party. I liquidated one of my mutual funds today that I had planned to hold long term after I learned I was going to get hit with a 15 dollar transaction fee for any future fund purchase. The fund was one of my riskiest as well Wasatch Emerging Market Small Cap. The fund had actually been one of my better performers this year and has performed relatively well to its benchmark. However, in this type of environment, it's quite possible that it may drop 50% or more in a short period of time. I ended up with a small loss on the position started early this year. I am now 100% cash in my trading account but still am 80% invested in my long term buy and hold portion of my portfolio with 20% cash.
As for where the market goes from here? I expect we head down to 1050 on the SNP which would give back all gains from the start of QE2. There is such incredible downside momentum at this point that stepping in front of it would be suicide. I don't anticipate any type of decent snapback rally as every 1-2% move up on the index gets smacked down real quick. The only hope for the bulls is a slowing of downward pressure and stabilization and perhaps some sideways action. I don't see any potential catalyst that could send the market into rally mode at this time. I thought the ECB buying Spanish and Italian bonds could have been one but today's action threw that out the window. Maybe Bernanke can say something tomorrow to reassure investors but whatever he says won't be enough for this market. Only the fundamentals can save us now. July jobs were better than expected. If we can get more good data points like this over the next month or so, we should stabilize. Lower oil prices should help out as well.

Friday, August 5, 2011

It's been about one month since my last drink which I took at the Angel game. I had 2 large beers there and the next day i felt really weird almost like I was going to collapse at one point. i'm not sure what's going on with me but i do know that drinking is not a good thing for me to do right now. For the past month or so, I've felt nervous, panicky, shaky, basically fucked up ever since i had those drinks. After one month of sobriety, I feel a lot better, my symptoms have gone away and I feel almost normal. Before those drinks I had been sober for 2 months. I recently went to Las Vegas with a few buddies of mine, one of whom is sober like me and 2 of whom were drinking like sailors. I was shooting dice for 6 hours and didn't have one drink, only water and diet coke. I'm pretty proud of myself for not drinking because everyone else around me was, in fact i did not even desire to have a drink. I've parlayed my not drinking into not smoking as well. As soon as I came home from vegas 2 weeks ago, i stopped smoking and have not had a cigarette since. Let's keep it going.

Now to the markets. It was another action filled day in the markets with the Dow Jones Industrial averages trading in a 400 point range!! With this kind of volatility, I wonder who would ever want to be a long term buy and hold investor in the stock market. Trusting your retirement money to the whims of fear and greed and political shenanigans and central banks seems pretty darn reckless at this point! Anyways, markets opened up higher as the july jobs report came in better than expected. However, selling resumed which quickly sent the averages to the lows of the day to 1165 on the S&P eminis. It seemed many investors were throwing in the towel, then word came from the European Central Bank that they were going to start buying Italian and Spanish bonds. This was a game changer to many as averages immediately reversed and shot higher like a rocket rising from down 267 to up 100. Averages traded in a range the rest of the day finally finishing 60 pts higher. I went ahead and nibbled some in my long term portfolio buying the most beaten down small cap stocks and foreign stocks. It looks like a bad move at this point as word has just come in that S&P credit rating agency has just downgraded US debt to AA rating which should result in more selling on Monday. Ah well. I've got to admit all this selling is getting to me as I sensed myself panicking at the lows of today and putting in sell orders on all my mutual funds. Strangely enough, it doesn't seem like investors are panicking that much here in America with many looking to pick bottoms and buy dips. I guess the problems in the Eurozone are far enough away as to not cause much concern here in America. I felt the same way until thursday's 500 point drop which really made me feel that there is something seriously wrong in the Eurozone. I believe a lot of the selling that happened this week and especially on thursday was forced selling by European banks trying to raise capital. With this kind of forced liquidation happening, there is no telling how far the markets can go down. The same kind of thing happened in 2008 which resulted in a 60 pct drop in stocks in a short time. Hopefully we don't have to live through that kind of thing again as I don't think I can take it.

Thursday, August 4, 2011

Here is a simple but tasty sandwich I make for myself and my uncle which you might like. It is my Italian Turkey-cheddar and avocado sammie. Its pretty easy to make but the ingredients are the key especially the tomato which is vine ripened from my garden.

Layer the turkey breast, tomato and cheddar on top and sprinkle italian seasoning on the cheese. Toast in toaster oven for about 4 minutes. Peel avocado and spread liberally on the other piece of bread. Sprinkle some seasoning salt on the avocado and put the sandwich together. Add some bacon if you really want a tasty sandwich. Enjoy!

Wow, what can one say about a day like today in the markets. Today was the ninth biggest down day in market history. All my long term mutual funds were down by 4.5 pct or more. I got stopped out of AAPL. My NLY took it on the chin although was down "only" 2.68%. I'm still trying to figure out what the hell is going on but I suspect it may be related to Trichet and EU leaders seemingly purposeful ignorance of the signficance of the problems in the Eurozone. I didn't expect the problems to be this bad but today's action proves that there is something seriously wrong in the Eurozone and the world economy in general. Price is truth and markets dropped the most today since 2008. My only conclusion is that we are headed lower perhaps to 1170 which is the target of the head and shoulders formation the market has been in for the past few months. Head was at 1370, neckline 1270, target 1170 on the S&P. It looks like i was a little early in nibbling yesterday as i got smacked down real quick. I am hanging in there though and not selling as i feel we are closer to a bottom than the top. I am looking to add to my positions especially in the hugely beaten down foreign stocks and small cap space but I will let the market tell me when to get back in. I ain't trying to catch this falling knife again!

Wednesday, August 3, 2011

Pretty amazing a song thats 40 years old can so accurately describe my present state of mind. Of course that song is paranoid by black sabbath. Here are the lyrics.

Finished with my woman 'cause she couldn't help me with my mind
People think I'm insane because I am frowning all the time
All day long I think of things but nothing seems to satisfy
Think I'll lose my mind if I don't find something to pacify
Can you help me occupy my brain?
Oh yeah
I need someone to show me the things in life that I can't find
I can't see the things that make true happiness, I must be blind
Make a joke and I will sigh and you will laugh and I will cry
Happiness I cannot feel and love to me is so unreal
And so as you hear these words telling you now of my state
I tell you to enjoy life I wish I could but it's too late

fucking sick.

Anyways, crazy action in the markets today. After 8 straight down days the DOW was down some 150 pts at one point in the session and then rallied nicely to finish the day up 30 or so pts. S&P and NASDAQ looked even better. Bulls may be bargain hunting here and we could get a few days bounce in my opinion. I added a few longs today after taking some off a week back. Not going crazy buying right here as the macroeconomic picture seems to be deteriorating rapidly. I will be selling any bounce up to 1300 on the S&P. As I write this, futures are up about 20 pts so hopefully we get some follow through for tomorrow. I also bought back my NLY position after getting scared out of it during last weeks crazy action. There was very strong positive price action in NLY for the past few days after last friday's flash crash. I guess all the people who got stopped out are buying their positions back. These MREITS aren't supposed to have massive moves like they have been having recently. The debt ceiling issue and potential credit downgrade of the US is probably taking its toll on investor psyche. I decided to buy back because I believe that NLY's fundamentals are strong and CEO Farrell reiterated that a credit downgrade of the United States would not affect NLY all that much. Low interest rates for an extended period, a weakening economy and an implicit government guaranteed portfolio of bonds all bode well for NLYs prospects for the next year or so, crazy flash crashes not withstanding.

Tuesday, August 2, 2011

I feel the heat.
The heat between me and you.
How can you just leave me standing?
Alone in a world that’s so cold ?
Maybe I’m just too demanding
Maybe I’m just like my father too bold
Maybe you’re just like my mother
She’s never satisfied
Why do we scream at each other
This is what it sounds like
When doves cry

This is my last post, I can't take the heat. I will only post on here, if i feel it is okay with you the powers that be. I apologize. Good night and good luck.

I guess the powers that be really don't like me posting on here because they are sending their minions at the collections agency to bother me. I don't get it. I am not allowed to post my opinion anywhere anymore? Who's going to read this shit anyways? Nobody, I ain't even publicizing it. So who gives a fuck what the hell I post anyways? I got no agenda.

It's either my own paranoid delusions or I really got ridiculed off facebook by my friends who don't give a shit about what i have to say about the stock market or economy in general. I have many paranoid delusions, some of which are as follows. People are watching every thing I do on the computer, people are actively trying to make me go crazy because they hate my guts. People wish to see me dead as they have put tylenol in my coke when they know I am drinking! I have proof of all of this as well except no one believes me because it is all circumstantial. Friends say I'm paranoid, but that doesn't mean they aren't really out to get me. Yes, I probably do need medication but I say BULLSHIT, if its true then I ain't really crazy!!
Anyways, this blog is going to be about many different things, the economy, stocks, paranoia, guitar hero, the simpsons and whatever the hell else comes into my rapidly deteriorating brain. Hmm, maybe I have syphillis and that's why I'm going nuts! Too scared to get it checked out though, oh well, just something else to worry about. Laugh out loud.